India ups military spend by 12 percent

"The US-India Business Council (USIBC) termed the raised FDI cap in the sector as an incremental step forward in bolstering India's defence manufacturing capability while leveraging international industrial cooperation. "

New Delhi, July 10 - India, which has the world's ninth largest defence budget, Thursday hiked its military spend by 12.43 percent, with Finance Minister Arun Jaitley allocating Rs.229,000 crore ($38.15 billion) in the budget for 2014-15 that he presented in the Lok Sabha.

This is Rs.25,373 crore over the Rs.203,672 crore allocated for 2013-14 and Rs.5,000 crore over the Rs.224,000 crore allocated in the interim budget for 2014-15 presented ahead of the April-May general election.

There can be no compromise with the defence of our country. I, therefore, propose to allocate an amount of Rs.2,29,000 crore for the current financial year for defence, said Jaitley, who is also the defence minister.

In comparison, China allocated $132 billion for defence for the current and Pakistan $7 billion.

The capital outlay for the defence sector has been increased to Rs.94,588 crore - Rs.5,000 crore more than the Rs.89,588 crore proposed in the interim budget.

The money allocated for capital expenditure will be spent on procuring new weapons and systems and for meeting committed liabilities in the form of payments for contracts signed in previous years. India imports 75 percent of its military hardware.

As usual, the 13 lakh-strong Indian Army gets the lion's share of Rs.92,669 crore, followed by the Indian Air Force with Rs.20,506 crore and the Indian Navy with Rs.13,975 crore.

Pensions account for Rs.51,000 crore, while Rs.5,984 crore has been set aside for the Defence Research and Development Organisation and Rs.1,275 crore for the Ordnance Factory Board.

Jaitley also allocated an additional Rs.1,000 crore for implementing the demand for One Rank One Pension that had been accepted by the previous government.

And, acceding to a long standing demand from India Inc, Jaitley hiked the cap in FDI in the defence sector from 26 percent to 49 percent, with the proviso that the management would remain in Indian hands.

Currently we permit 26 percent FDI in defence manufacturing. The composite cap of foreign exchange is being raised to 49 percent with full Indian management and control through the FIPB route, Jaitley said.

Noting that it would be a privilege for the nation to erect a befitting memorial to the armed forces personnel who had laid down their lives in the service of the nation, Jaitley said: I am happy to announce that a War Memorial will be constructed in the Princes Park (in the capital). It will be supplemented by a War Museum. I am allocating a sum of Rs.100 crore for this purpose.

Of the total allocation, Rs.100 crore has been set aside for a Technology Development Fund to provide necessary resources to public and private sector companies, including SMEs, as well as academic and scientific institutions to support research and development of defence systems that enhance the country's cutting-edge technology capability.

The fund was first proposed in 2011 but beyond the announcement, no action was taken, Jaitley said.

Terming the Rs.5,000 crore hike in the capital outlay as modest, noted security expert C. Uday Bhaskar said the infusion should have been to the order of Rs.40,000 crore but the exchequer can't provide that kind of funding.

In the past few years, the revenue component has been increasing. This is a trend line that is a matter of concern, added Bhaskar, Distinguished Fellow at the Society for Policy Studies.

The hike in the FDI cap is welcome but has to be seen in the context of creating an ecosystem that would encourage foreign investors to come to India, he said.

We seek strategic autonomy in our foreign policy but are dependent on imports for military hardware which is currently at 75 percent. We have been seeking self-sufficiency for 50 years. We don't even make a personal weapon.

This is an issue that been pending for over 10 years. Some of the clauses are so draconian that they would almost scare foreign investors away, Bhaskar pointed out.

Terming the proposal for a war memorial as most welcome, he added in lighter vein: What (then defence minister) George Fernandes (who initiated the proposal) couldn't do, perhaps Arun Jaitley can.

The US India Political Action Committee (USINPAC) also welcomed the increase in FDI cap in the defence sector, saying this means not only more equity investments coming into India, but more importantly the technology transfer that will accompany suchinvestments.

This combination of more money and technology transfer will go a long way in helping India to strengthen its own robust manufacturing and industrial production base, and also generate jobs in the manufacturing sectors, USINPAC chairman Sanjay Puri said in a statement,

The US-India Business Council (USIBC) termed the raised FDI cap in the sector as an incremental step forward in bolstering India's defence manufacturing capability while leveraging international industrial cooperation.

USIBC welcomes greater clarity on the scope of technology transfer required to cross the 49 percent threshold, so as to achieve maximum potential investment in this important sector, USIBC acting president Diane Farrell said in a statement.

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